Tag Archives: stock market

Forex and Commodities Futures and Options

The popularity of trading futures and options has been growly rapidly for several years. The ease of accessing constantly updated data online has prompted an increased fever by day traders to attempt to be successful and make money in this risky investment area. Individuals can now trade these markets with the same ease and speed as large companies.

Trading forex (foreign exchange) and commodity futures and options is not for everyone. It is a complex and risky business that experiences volatile price and value swings. Before you invest any money in forex, commodities futures, or option contracts, you should:

Consider your financial trading experience, goals, and financial resources and know how much you can afford to lose above and beyond your initial payment.

Understand commodity futures and option contracts and your obligations before committing your finances into trade contracts.

Understand your risk exposure and aspects of trading by thoroughly reviewing the risk disclosure documents your broker is required to give you.

Know who to contact if you have a problem or question.

Ask more questions and gather more information before you open an account.

Commodity futures and option contracts:

A futures contract is a legally binding agreement between two parties to buy or sell a specific financial product or commodity in the future, on a designated exchange, for a specific quantity of a commodity at a specific price. The buyer and seller of a futures contract will agree now on a price for a product to be delivered, or paid, for at a specifically set date and time in the future, which is known as the “settlement date.” Actual delivery of the commodity can take place in fulfillment of the contract, but most futures contracts are closed out or “offset” prior to delivery.

An option on a commodity futures contract is a legally binding agreement between two parties that gives the buyer, who pays a market determined price known as a “premium,” the right (but not the obligation), within a specific time period, to exercise his option. Exercise of the option will result in the person being deemed to have entered a futures contract at a specified price known as the “strike price.” In some cases, an option may confer the right to buy or sell the underlying asset directly, and these options are known as options on the physical asset.

In the United States, an individual, cannot trade futures contracts and options on futures contracts directly on an exchange. A person or firm must trade on your behalf. People and firms who trade on your behalf as a customer generally must be registered with the Commodity Futures Trading Commission.

Two general categories of trading accounts:

Individual Account. In an individual account, trading is done only for you. An individual account may be setup as either a “non-discretionary” or a “discretionary” account. A “non-discretionary” account means that you will make all the trading decisions and the broker may not execute any transactions without your prior approval and consent. A “discretionary” individual account means that you give permission to the broker firm carrying your account or some third party to make trading decisions on your behalf.

You may open an individual account with a registered Futures Commission Merchant or through an Introducing Broker. An Introducing Broker may accept your orders and transmit them for execution to a Futures Commission Merchant with which the Introducing Broker has a relationship. You deposit funds directly with the Futures Commission Merchant. In an individual discretionary account, you grant power-of-attorney to a Futures Commission Merchant, an Introducing Broker, one of their Associated Persons, or a Commodity Trading Advisor to make trading decisions on your behalf.

Commodity Pool. You may also trade commodities through a “commodity pool.” This means you are purchasing a share or interest in the pool, and trades are executed for the pool, rather than for the individuals who have interests in the pool. Pool participants share in any gains or losses.

If you have a dispute or a problem arises out of your commodity futures or option account, first try to resolve the problem with your broker. If that is not successful, then you have options for resolving disputes: (1) the CFTC Reparations program; (2) industry sponsored arbitration; or (3) court litigation. In selecting a particular approach, you may want to consider the cost, length of time involved and whether the assistance of an attorney is required. More information on dispute resolution is available from the CFTC’s Office of Proceedings (202-418-5250).

A Checklist “Before You Trade”:

Make sure you have:

Clearly identified your financial goals, including the amount of risk and loss you can handle?

Determined how much assistance and help you may want from a trading advisor in making trading decisions?

Checked the registration status and disciplinary history of the advisor or pool you select with the National Futures Association?

Received and thoroughly reviewed the disclosure document — before you open an account?

Clearly understood the disclosure document, including the statement of fees, the potential for loss, your right to withdraw your funds and the “break-even analysis?”

Make sure you ask questions for anything that you do not understand. Remember, it is your money, make sure you know where it is going.

Call the CFTC or the NFA with any questions you may have?

http://www.cftc.gov

http://www.nfa.futures.org

How to Invest in Index Funds

Index mutual funds are an easy, affordable, and diversified option of investing in the stock market. When you buy an index fund as an investor, you get a variety of stocks in a single package—without having to go through the trouble of buying each one individually. The management fee is fairly low because the funds contain all investments in a specific index. You, therefore, end up getting higher investment returns. 

Buying an Index Fund

  1. Choose Where to Buy

You can buy an index fund from a brokerage or a mutual fund company. The same applies for ETFs (exchange-traded funds).

When deciding where to buy, consider the following:

Fund selection: do you prefer to buy index funds from different fund families? Major mutual fund companies hold their competitor’s funds. However, the selection is likely to be limited compared to what you will get from a discount broker’s line up. Convenience: look for a single provider who will cater for all your needs.

For instance, if you are only interested in mutual funds, a mutual fund company will do just fine as your investment hub. However, for screening tools and sophisticated stock research, you may need to go to a discount broker. Commission-free options: see if they offer commission-free ETFs or mutual funds with no transaction fee. Trading costs: check how much a fund company or broker charges to sell and buy the index fund if there is no waiver for the transaction fee or commission. 

  1. Pick an Index

Index mutual funds usually track various indexes. One of the most popular indexes is the Standard and Poor’s 500 index. It tracks some of the largest and well-known businesses in the U.S and represents a wide range of industries. There are other indexes, like the S&P 500, made of other assets such as stocks chosen based on:

  • Company size and capitalization
  • Geography
  • Business industry or sector
  • Asset type
  • Market opportunities

Despite the wide range of options available, you will probably need to invest in one only.

  1. Check Investment Minimum

Index funds are known for their low costs. Since they are automated, they do not require a lot of money to run. However, they still have administrative costs which are deducted from each shareholder’s profit. Two funds with a similar investment goal may have varying management costs. The fractions may not seem significant but in the long-run, they can take a huge cut off your returns.

These are the costs you should consider: Investment minimum: this is the minimum amount that is required to invest in an index fund. Account minimum: this should not be confused with the investment minimum. Expense ratio: this cost is deducted from each shareholder’s profit. Tax-cost ratio: these are also, in most cases, deducted from the investment returns. 

Other Factors 

Is the index fund serving its purpose? It should reflect the progress of the underlying index. Can you afford the index fund you want? You can buy just a piece of the fund if it is too expensive. Would it be better to buy stocks? Are you making progress? There are calculators online that you can use to track your progress.

An index fund can be described as a kind of mutual fund with holdings that track or match a certain market index. You can have a diversified portfolio and earn significant returns with this kind of investment. The reason is that index funds are not in competition with the market; they are, instead, trying to be the market.

That is, buying stocks of all the listed firms on the index and therefore reflecting the index’s performance. Index funds are helpful in balancing the risk in the portfolio of an investor. Market swings are usually less volatile throughout the index unlike with individual stocks. They allow you to buy the entire market indirectly. With an index fund, you buy the securities making up the entire index.

An index fund usually buys shares from all companies that are listed on an index. An investor then buys shares from that fund and its value will reflect the losses and gains of the index that is being tracked. You win by accepting defeat. There is a high likelihood that you will not outperform the market when you pick individual stocks. Even experienced investors do not. According to research (2001 to 2016), over 90 percent of active fund managers actually underperformed their benchmark index. You have a better chance of meeting market gains than you have of beating the market. That is the major purpose of index funds.

Index funds are becoming more popular among investors. Actively managed exchange-traded funds and mutual funds saw outflows of almost $514 billion. Passively managed funds, on the other hand, saw about $1.6 trillion in new money (April 2014 to April 2017). The increased popularity of passive investing and robo-advisors are responsible for this. There are index funds across different asset classes. An investor can acquire funds that focus on a specific sector such as technology or on companies with large, medium, or small capital values.

These indexes may not be as diversified as the broadest index market, but they are still diversified. What is in It for You? Although individual stocks rise and fall, indexes rise with time. You may not get an insane profit during a bear market with index funds, but you will also not lose your money in one investment. With index funds, there are fewer fees that reduce your returns. For index funds the expense ratios (cost of management and commissions of your account) are lower.

This is because they are easier to run than the managed accounts. You will not be paying someone to assess financial statements. You diversify your portfolio with index funds. Index funds, just like other mutual funds, spread risk and offer investors more choice among riskier and conservative investments and also a wider mix of asset classes and industries. It is easy to understand index funds. It may be a little difficult to understand most investing strategies. However, what you see with index funds is exactly what you get. 

How to Outperform the Stock Market?

Albert Einstein once said there is nothing more powerful than compound interest. Apply that logic to buying a stock in the stock market, and you can double your money in ten years. Further leverage that logic by putting 5% down on a home, and you can possibly multiply your money by four times, eight times… even twelve times in those same ten years!

Need Proof?

Let’s say you have $10,000 and want to find the best return for your investment. You can certainly put your money in the stock market, and if your stock goes up by an average of 7% per year, your $10,000 nest-egg will be worth nearly double after 10 years. ($19,472 to be exact.) Not bad for passive income!

However, if you take that same $10,000, and apply it as a down payment toward a 200,000 home that appreciates by half the rate of the stock market (3.5% a year average), your home will be worth over $282,000! Even if you get an interest-only loan, your initial $10,000 investment will be worth over $92,000 after selling the home and paying off your loan! If your home appreciates at the same rate as the stock market (an average of 7% per year), and your initial $10K investment that bought a 200,000 home, will parlay into owning a $384,000 home! Pay off your $190,000 loan, and you’ll be sitting on $194,000 in cash!

If you’re wondering about monthly payments, you have two options: If this is for a home you will live in, the monthly payments will likely be the same as you would be paying in rent anyway, and there are additional tax benefits that haven’t even been discussed in this article. If you buy this property as a rental property, your tenant’s rent payments should more than cover your mortgage payment. (There’s nothing more beautiful than letting someone else pay for your real estate investment. You just can’t do that in the stock market, but it’s done all the time in Real Estate.) If you’re still in doubt, you might want to read a couple other well-known books — “The Wealthy Barber” by David Chilton, “Rich Dad, Poor Dad” by Robert Kiyosaki, or “How to get Rich” by Donald Trump. If you don’t feel like running out and buying a book right now, feel free to listen to a free recording where a Colorado real estate investor shares his secrets to success. Listen to the free recording at: http://www.automatedhomefinder.com/education/investments101.php

Too much risk?

Yes, there is risk, but it is doubtful that your risk is any higher than the risk involved with investing in the stock market in the first place. The higher the risk, the higher the reward, and real estate has been a time-proven investment vehicle for millions of wealthy individuals — Donald Trump, Warren Buffett and David Chilton (“The Wealthy Barber” himself.)

How to get started:

If you’d like to explore the idea of investing in real estate in your area, simply look up a buyer-agent in your area, or start a search on the internet and start a couple real estate searches to see what kind of home you can get in your area. If you’re not sure how much home you can afford, your Realtor can help, or put you in touch with a lender who can.

If you have money that you would like to invest to help grow your overall finances, you might have considered a high interest savings account in a bank, the stock market, bonds, and so forth. Of course, the fastest way to make profit (but also the riskiest) is by using the stock market. It is for this reason that people putting money into stocks should have as much information on them as possible to help them avoid losing it all.

1. How Trades Work on The Stock Market

If you are looking to do just one, or many, trades you will need to get a stockbroker. Brokers can also offer advice about that stocks to trade and the condition of the market. These full-service brokers charge a relatively high commission. To cut costs, many people use discount brokers that charge significantly less. The downside being that you don’t get expert advice, but if you’re willing to forgo that pleasantry you might want to rely on the fact that most brokers will not do a trade that is not profitable.

2. Brokerage Services

Brokers often engage in online trading and can even provide you with assistance for your trades. This is known as broker assisted trading and some brokers offer options like Interactive Voice Response System for placing orders by telephone and wireless trading systems for making orders by using web-enabled cellular phones or other handheld devices. They take their job very seriously and are always connected  to be able to make a trade.

3. Track Stock Market Movements

Most brokers will put forth the extra effort to be able to allow their clients to place orders over the internet. Special software may also be available to help clients see charts and graphs. The entire system is password protected and usually doesn’t cost a lot more. This can be very convenient and save you time and money.

4. Stock Orders Also, What They Mean

Market Order – The instruction to buy or sell at the current market price

Stop Order – Instructs the broker to trade at a specific price

Limit Order – Instructs the broker to trade at a given price or better

GTC – This stand for good until cancelled. Your desire to buy or sell will be executed until you say stop.

5. The Stereotypical Trade

Your average trade takes place in something called round lots, multiples of 100. While it’s possible to trade other amounts of stocks, but this kind of trade is called an odd lot. Trading software can handle both types of orders, but odd lot orders are slightly more difficult to fill than the most common trade denomination.

The key to using options to increase your stock market profits is that you must be able to correctly predict both the direction that the stock will move, and the approximate time frame in which the move will take place.  If you miscalculate on either of these values, you will either break even, or loose. On the other hand, if you are correct, your profits may well exceed three times the amount you would have made with just a straight investment in the stock.

An option gives the owner the right but not the obligation to purchase something. More specifically, stock options are financial instruments that come in four varieties: Long or Short positions on a Put or Call.

Long means a person purchases a Put or a Call. Short means a person sells or writes a Put or Call. Option writing is a more advanced topic so this course will focus on the more common long or option buying, and the following descriptions assume all positions are long.

A Put is the instrument that profits when the underlying stock declines in price. When the stock goes down, the value of a Put goes up. A Call is the reverse of a Put. The value of a Call goes up when the stock increases in price.

As you can see, if you expect the stock price to go up, you buy a call. If you expect the price to go down, you buy a put. There are two more parts to an option that need to be covered. First is the expiration date.

All options have a date in which they expire or become worthless. Remember that an option gives the owner the right to purchase something. This right is for a limited amount of time.  Depending on the stock, different options might be available for several consecutive months into the future, or there may be a couple of months skipped. The specific day of the month that an option expires is always the third Friday of the month, unless it is a holiday, in which case the expiration is on Thursday.

The second element is the strike price. This is the price that the option will be exercised at. Again, an option is the right to buy something, and the price at which something is bought is the strike or exercised price. Depending upon the option, these prices may be incremented by $2.50 up to $10.

This all adds up to a lot of choices when it comes to buying an option. Calls or puts plus different expiration months, and multiple strike prices within each month is a lot of different decisions.

With the abundance of choices, the number of contracts traded for a specific option can be small for a stock that is not particularly popular in the news. This fact my limit your trading opportunities or may result in a large price spread between the bid and ask prices.

If you can identify certain situations that will influence the stock price within a defined time period, you may be able to use stock options to triple your returns. Many investors have found such patterns and are making excellent profits by carefully selecting the right stock options.

How to Choose Stocks

Everyone wants to see growth from their stocks. That is why they take their funds from the bank and start investing them. Many first-time investors remove their funds with a feeling of trepidation and anxiety. The stock market is a volatile storm where many drowned.

The first step is to learn how to buy a stock.  Many investors jump right in learning investment strategies and adopting techniques that worked for others, before learning the simple steps to buying a stock.  Without a good understanding of the rules of buying a stock, it becomes impossible to make the strategies work.

The strategies do work but only when the investor chooses the right stocks for their own portfolios.  The strategies do not tell investors what to buy and when to sell. They are only meant to tell investors how to manage their stocks. First, the investor must buy some stocks.

Step #1: Read the Wall Street Journal

The Wall Street Journal is not the only paper that can help investors. The business section of your local paper can often offer tips that will never make it into the Wall Street Journal.  However, The Journal can teach new investors the lingo, and the basics of the markets.  The more you read, the more familiar the markets become, and the easier it is to research stocks.

Step #2: Pick Industries

No one expects an investor to build a portfolio with a few stocks from mining, a couple from manufacturing, a drug developing company, a foreign natural resource harvester, and a marine biology firm.  This is foolish investing.  Instead, investors should focus on one or two industries and learn everything they can about that industry.

There are many places to research.  Sometimes a simple place like finance.yahoo.com or Morningstar.com can provide all the resources needed to find an industry you will not tire of.

Step #3: Decide How Much to Invest

This is one of the hardest parts of investing. Many people have a set amount to invest. They experience some success and hit pay load. Then the temptation sets in. If they had invested $10 000 instead of $1 000, their payoff would have been 10x higher. What if they had of invested $100 000?  This type of thinking is dangerous.

Never invest more than you can lose is a nice mantra, but in the real world, resisting temptation is much harder.  As the year’s past, some investors start counting up the intangible money they may have earned if they invested more. This leads to frustration instead of joy when a stock does well.

Eventually, they start investing more than they can afford to lose. Then, they lose it –

Step #4: Avoid the Crowd

Some new investors believe the best way to buy a stock is buy whatever is hot now. They skip through websites and financial papers until they find something that is hot. Unfortunately for them, they have not yet met the Bull or the Bear.

Buying hot stocks is only for people who can determine why that particular stock is hot at the moment. Buying on an impulse or gut feeling is just as dangerous.  By the time a stock is hot, the real investors have already bailed, having made their money, and are leaving before the crash.

These four steps will help a new investor buy a stock which should perform well, instead of buying a stock that bottoms out within a few weeks.

Today, many people want to know how to buy stocks to increase their net worth. When it comes to making your purchase, there are several options available today. In the old days, you had to call up your financial advisor or stockbroker and let them place the order for you.

They would then phone in your order to someone on the stock exchange, who would locate a stockholder of that company willing to sell those shares to you. That was then; this is now. Nowadays, you can almost always make the purchase yourself via the internet.

Very simply, today there are many websites that allow active trading for a minimum fee. Keep in mind, however, that for each transaction you pay a fee. Many an investor has lost a great deal of money active trading, by merely being forced to pay a fee for each transaction.

While the fees generally don’t seem like whole lot (1-2% of the total) they can add up in a hurry when you are making a lot of transactions; especially if your investments are losing money or barely breaking even. The best strategy is to only buy a stock when you are sure it’s a sound long term investment. This way, you don’t have to pay the fees associated with active trading, and you also have much less risk from the day to day wild swings of the market.

How can you be sure of its long-term worth? While there are certainly several ways to go about doing this, the essential skill you need to have is knowledge of how to read a financial statement of a company. Very simply, you need to determine how well a company has been doing over the past ten years.

This is probably the most important factor, because if a company has been running profitably for at least ten years (preferably more) they are a good bet to keep doing well. These are usually not the stocks getting all the hype; very simply, most investors like the fly by night companies that have the potential to spring up and make a million bucks overnight. unfortunately, you will most often lose more money with these companies than you will ever make, because of the uncertainty factor.

Of course, you can still go through a traditional stockbroker to make your purchase. Remember that they are paid by commission for each transaction they make.

Often, they will try to encourage you to buy a stock, even if the outlook isn’t particularly profitable, so they can pocket some money for the transaction. Never trust a broker for your financial future; you need to know how to do your own research and determine which stocks are the best pick.

The bottom line is there are several methods for how to buy stocks. You can either invest online or through a broker; but no matter which method you elect to pick, make sure that the company you are investing in has good profits for the foreseeable future.

Avoid active trading when buying stocks, as that can be a very risky proposition. Active trading is like gambling; very few active traders ever win long term investing in stocks this way. Do your research, find the stock that’s right for you, and only then should you worry about how to buy stocks.

How To Build Wealth During Turbulent Stock Market Turmoil

There is Much Greater Geo-Political Instability Today than 20 Years Ago

In mid-2006, the global markets corrected a great deal. In the U.S., the Dow plummeted 4%, the Nasdaq about 6%, and the S&P 500 about 5% in a single week. European stocks posted their biggest drop since May 2003, and the FTSE 100 in the UK had its biggest two-day loss in 3 years. And that was just the beginning of very turbulent times in the global stock market that destroyed billions of dollars of capital. On the other hand, during this time, in Asia, the HK Hang Seng index was up 22% for the year, the South Korean index was up 55%, the Australian markets were up 31%, and China was up 50% over their 12-month lows.

Then for the rest of the year, the U.S. and global markets grew even further and almost every investor had long forgotten about these drops until a historic 9% single day drop in the Shanghai markets triggered a global market decline in the 1st Quarter, 2007 (though the explanation truly is not this simple).

When we experienced the first drop in 2006, the U.S. was allocating $2 billion to shore up its borders, major conflict still was raging in Iraq and Afghanistan, and Venezuela had increased the top royalty rates on oil to 33% from 16.67% after raising this rate from just 1% in October, 2004. In Bolivia, Evo Morales had followed his friend Chavez’s lead in protecting national assets and nationalized his country’s oil and natural gas resources. And in Mexico, political unrest, according to Subcomandante Marcos, was the worst since 1994 as Mexico neared its next Presidential election. Still that wasn’t even the worst of it.

In Iran, the threat of nuclear confrontation with Israel and the United States loomed, and in the U.S., record trade deficits, and a falling dollar waited ahead.

Well despite the recent buoyancy in the global markets, I still believe that we may see the worst to come. Why? Just read the paragraph above. Nothing much has changed in 2007 from back then regarding the above. So, in response, I have been shifting significant portions of my client’s assets into several areas for protection. But not just for protection but to profit greatly when more turbulence hits.

When severe market corrections occur, the biggest mistake individual investors make is to panic sell during these market corrections and then buy back in after the market bounces back significantly. That’s the worst thing you could do – Sell low and buy high -yet millions of investors responded exactly in this manner. But yet if you are mainly invested in Europe and the U.S., you need to rebalance your portfolio now because you will be punished for such short sightedness when other major corrections occur in the future or if this current one continues after a slight bounce higher this past week.

So, what is an Investor to Do?

The first thing one needs to do is to stop listening to the advice of large investment firms. Investment firms will tell you that it’s impossible to time the market and that to remain fully invested always is a much better strategy. First of all, if you go back and read my blogs for the past couple months where I repeatedly warned people to prepare for a market correction, and specifically told people to start buying inverse funds on the U.S. index you’ll know that it is possible to predict market corrections. After all, I wasn’t the only person saying this.

The reason most investment firms tell you that it’s impossible to market time is that often they don’t get paid on non-invested assets, and even when they do, who would ever want to pay management fees on cash? Recently, friends asked me to look at their portfolios and to provide them with advice. What I saw was predominantly domestic portfolios (i.e. if the investor lives in the U.S. almost all the stocks our American stocks, if the investor lives in Singapore, almost all the stocks are Singaporean stocks, if the investor lives in London, almost all the stocks are U.K stocks, etc.). These are the types of portfolios that will get punished again in the future.

I remember reading an article in 2006 about a big producer at another American firm that shifted 70% of all his client’s assets into China, but all through Chinese mutual funds. I hate mutual funds and the thought of owning mutual funds in emerging markets (but that’s an article for another time). People should always own stocks, not mutual funds. Mutual funds are the lazy way out and you’ll get punished for being lazy. It’s just not the way to benefit from these rapid growth markets. In fact, I’m certain that when the Chinese markets corrected these past couple of weeks, all of these managers client portfolios were severely punished.

So where should your money go? Due to all the political unrest, I’m looking at the defense sector. And due to all the geopolitical unrest, I’m looking at precious metals. Given the global market corrections, I’m looking for continuing opportunities in China of course, as well as some in Brazil, Mexico, Vietnam, France, Australia, the U.K. and Canada. However, the best protection in turbulent markets is really yourself.

What do I mean?

The single most critical factor for building wealth is undoubtedly to learn how to do it yourself.

If you think about it, when was the last time a friend of yours ever told you, my financial consultant saved me so much money during these recent corrections it’s unbelievable! All I ever heard when I worked at these firms during strong downturns, was every single one of my clients is down 25% this year. Yet I know lots of individual investors that manage their own money that will come out of these recent corrections just fine.

To tell you the truth, the best protection your stock portfolio has against a strong market downturn is your own brain. Financial consultants that work at large firms neither have the time to adequately protect your portfolio against strong downturns and the bottom lines of the firms they work for are not adequately motivated by protecting accounts against market turbulence.

When turbulent markets happen, all the myths that global investment firms propagate are exposed. Market timing is bad; diversification is bad; foreign markets are risky; and asset allocation, not individual stock selection is important- all come to light for what they are myths. Even if the Shanghai markets corrected 9% in one day of which some of these losses were recently recouped by rebounding markets, this correction is irrelevant if all the stocks you’ve bought in the Chinese markets were up 70% to 100% at the time the correction came.

During turbulent times, you’ll see that diversification is not important, but that selecting the right individual stocks in the right individual markets at the right time is what is truly important. Most financial consultants will try to spin losses by saying that diversification saved your portfolio from further losses, but the fact of the matter is that if they had been focused on the right stocks in the right asset classes in the right markets, instead of possibly having all profits wiped off the board by this recent correction for the fiscal year 2007, you would still be sitting on some decent profits. So, what’s the best advice I can give you for protecting your stocks during turbulent times? Three words – Do it yourself.

Dividend Investing

Dividend investing is a great way to make extra cash. If you focus on solid companies that regularly increase their dividends, a small amount can grow to become significant. Before you dive into dividend investing, here is what you need to know.

The main reason is that you will gradually become rich. Companies that pay dividends are more stable and mature than those that do not. Although they will not skyrocket suddenly, a portfolio of dividend stocks can build a lot of wealth in the long-term. Upcoming companies do not pay dividends. They feel they should reinvest their profits and grow the business instead.

When a company has grown and does not need to reinvest all its earnings, it can pay back capital to shareholders in two ways; share buybacks or dividends. According to investors, no one way is better than the other and most dividend stocks combine the two.

Dividend stocks are mainly profitable and so they always have a better chance of surviving crashes and recessions better than their non-dividend counterparts. They are also less volatile. Dividend yield is the least important of all the other metrics that major investors should be conversant with. A higher dividend is preferable (if all other factors are equal) but if a stock pays a reasonable yield, then you should concentrate more on other factors.

Long-term investors consider dividend growth and consistency more important than the current yield of stock. If you decide to invest in dividends, you should be aware of a few important dates. These dates will help you know when you will get the next dividend payment of a stock. Trade date: this is the date you bought your stock. Contrary to what you may think, the ownership of the stock is not immediately transferred to you. Settlement date: for stocks, this refers to three business days from the trade date.

This is when your purchase is finalized, and you are officially a “shareholder of the record”. Ex-dividend date: this is when a stock first trades without its dividend. You are entitled to a dividend payment if you purchase shares before the ex-dividend date. Record date: this is two business days from the ex-dividend date. On this date, the company determines who does and does not get a dividend. Pay date: this is when shareholders are paid a dividend. 

If you want to invest for the long run, reinvest your dividends so that you can maximize your returns. If you are a new investor, it is wise to start with an ETF that deals specifically with dividend stocks. All the knowledge can be overwhelming to a new investor so investigate the index-fund approach. This is a smart way to get into dividend investing safely. 

The only shareholders a company has when it is first formed are early investors and co-founders. For instance, if a startup company has one investor and has been founded by two individuals, each one of them will probably own a third of the shares of the company. As the company continues to grow, more capital will be needed to facilitate the expansion. Consequently, it will issue more shares to interested investors. Eventually, the founders will have a smaller percentage of the shares.

At this point, both the firm and its shares are private. Private shares are not exchanged easily in most cases and the number of shareholders is usually not big. As the company becomes bigger, the early investors will want to sell their shares and cash in the profits of their investment. Again, the company may require more capital and the few investors may not be able to offer what is needed.

This is when the company considers an IPO (initial public offering) and transforms into a public company. Other than the public/private distinction, companies can issue two other types of stocks: preferred shares and common stock. Any time you hear people talk about stock; they usually mean common stock. This is the most issued form of stock. Common shares come with voting rights and represent dividends (or claim on profits). Investors commonly get one vote for each share to elect board members.

These board members oversee the key decisions in the company. Common stock tends to have higher returns over the long run (by means of capital growth) compared to corporate bonds. Now, this higher return does not come without a cost. Common stock comes with very high risks including the risk of losing the entire invested amount should the company go out of business.

If the company declares bankruptcy and liquidates, common shareholders only receive money after preferred shareholders, bondholders, and creditors have been paid. Preferred stock is more like bonds in terms of function. Preferred shareholders do not have voting rights (some companies are different). With preferred stocks, the shareholders are assured of a fixed dividend in perpetuity. Common stock is different here in that it has variable dividends which are never guaranteed—the board declares these dividends.

As a matter of fact, most companies do not even pay out dividends to common shareholders at all. Another advantage of preferred stock is that if the company liquidates, shareholders will be paid before common shareholders. However, preferred shareholders still get paid after creditors and debt holders. In some cases, preferred stock is callable. This means that the company can re-purchase the stock from a preferred shareholder for any reason at any time. Preferred and common are the two major forms of stock. However, companies can customize various classes of stocks depending on the needs of their investors.

The main reason for companies to create share classes is to keep voting power within a specific group. In this case, different classes of stock have different voting rights. Any investor that wants to be successful in the current financial marketplace must maintain their portfolio well. You must know how to allocate assets to best suit your risk tolerance and investment goals. Using a systematic approach, investors can create a portfolio that is aligned to their investment strategies. Here are the steps to help you take such an approach.

Step 1: Know the Right Asset Allocation for You – The first step in building a portfolio is understanding your current financial situation and your goals. Some of the important factors you should consider include your age, the time you have, future income needs, and the amount of capital at your disposal. Another thing to have in mind is risk tolerance and personality. Can you willingly risk your money in the hope of future returns?

All investors love the idea of reaping profits year in and year out. However, if a short-term drop is likely to give you sleepless nights, then maybe you should stay away from high-return assets. When you understand your risk tolerance, future capital needs, and current situation, you will be able to determine how to allocate your investments among different classes of assets. The potential of high returns is usually accompanied with a higher risk of losses.

Step 2: Achieving the Portfolio After deciding on the perfect asset allocation, it is time to spread your capita over the right asset classes. This is easy on the basic level; bonds are bonds and equities are equities. You can, however, divide the asset classes further into subclasses; they also vary in terms of potential returns and levels of risks.

In choosing securities and assets, you can use several methods to suit your strategy. Stock picking: ensure that the stocks you pick are in accordance to your risk tolerance. Use stock screeners to analyze companies and narrow down your options. Bond picking: consider the interest-rate environment, bond type, rating, maturity, and coupon. Mutual funds: you can opt for those that are picked by professional fund managers. 

What Are ETF’s ?

ETF stands for Exchange Traded Fund. It is best defined as a combination of commodities, bonds, and stocks—or a few of these. With them you get two of the top advantages: ease of stock trading and the diversification of mutual funds. Good as they are, ETFs are not for everyone. You must evaluate them for yourself and see if they are suitable for you.

Like a stock, you can trade an ETF on an exchange. It allows you to trade a combination of assets without necessarily buying each component individually. This is how it works: underlying assets are owned by the fund provider who creates a fund to monitor their performance. He then sells the shares that make up the fund to investors. 

The shareholders do not have ownership to the underlying assets—they only own a fraction of an ETF. Investors still get reinvestments or lump dividend payments for the stocks in the index. ETFs are created to monitor an underlying asset such as a basket of stocks or gold. However, they still trade at prices determined by the market—and these usually differ from the asset. The returns are also different from those of the underlying asset. The fees of an ETF are generally lower than those of mutual funds. It is one of the things that make them attractive.

Investors also love ETFs because of their tax-efficiency advantages. While the popularity of ETFs continues to rise, the available mutual funds are still more. The management structures for these two products are different—mainly passive for ETFs and active for mutual funds. You can, however, get ETFs that are actively managed. You can trade ETFs on an exchange, much like stocks.

Their similarities end with what they represent. Stocks represent a single company while ETFs are a basket of assets. In trading, ETFs are like stocks. But if you look under the hood, you will realize that they are closer to index funds and mutual funds. There are many types of ETFs, and here are the most common.

Note that a stock ETF can fall under more than one category. Stock ETFs: the stocks in this one are designed for long-term growth. Commodity ETFs: a commodity is a raw good such as coffee or gold. With a commodity ETF, a number of these securities are combined to make a single investment.

Bond ETFs: these do not come with a maturity date and they generate regular income to the investor. International ETFs: they are less risky and help you diversify your portfolio. Sector ETFs: with a sector ETF, you can invest in certain companies within a specific sector. Pros and Cons of ETFs – Pros – Diversification, Transparency, Tax benefits – Cons – Trading costs, Harder to sell/unload, and Risk of ETF closing.

If you are looking for brokers, here are some of the best. E*TRADE, Ameritrade, and Interactive Brokers. Before you buy, decide whether you want to be an active or passive investor. Exchange-Traded Funds (ETFs): ETFs are a great alternative to mutual funds. – Step 3: Reanalyzing Portfolio Weightings – After your portfolio is established, you must assess and rebalance it occasionally. 

Market movements can have an impact on your initial weightings. Categorize your investments quantitatively and check the proportion of their values to assess the actual asset allocation of your portfolio. Other factors like your risk tolerance, future needs, and current financial situation may also change.

If they change, it may be wise to make some changes to your portfolio. To rebalance, check your underweight and overweight positions. Step 4: Rebalancing Strategically – Once you know which securities should be reduced, choose the underweight securities that should be bought using the proceedings you get from selling your overweight securities. Before you jump into selling your assets to rebalance the portfolio, make sure you understand the tax implications that come with that. The securities’ outlook is also another important factor.

How Much Money Can You Make from a $500,000 Portfolio?

Everyone has to stop working at some point in their life. When that time comes, they will have to dig into their retirement savings. Some have enough and can live comfortably; but others are not so lucky.

People now live a little longer and, depending on how long you live, you may need income for 30 or more years. So, how much should a retiree save?

Will $500,000 Be Enough?

To be honest, this would not be enough for many people today. But you can get sufficient income with a good investment portfolio. 

Suppose in your first year of retirement you want to earn about $50,000. The average Social Security payment is $17,000. So now you have to earn $33,000 from your $500,000 portfolio. 

Another assumption here is that income will increase with inflation and the investment portfolio will, therefore, have to increase. The portfolio should protect your savings and, at the same time, grow at a higher rate than your yearly withdrawals. So be sure to find the proper balance between fixed-income investments and stocks. 

Many financial advisors typically recommend the 4% rule to their clients when it comes to withdrawals. According to this guideline, you should never withdraw over 4% of your income in a year. 

If you have saved $500,000, you will either have to live on very little or go against the 4% rule. 

Here are some possible $500,000 investment portfolios and their potential income.

20/80

20% equities, 80% fixed income

  • 10% US Equities
  • 10% International Equities
  • 10% US Treasuries
  • 15% Global Bonds
  • 15% Corporate Bonds
  • 5% TIPS (Treasury Inflation-Protected Securities)
  • 10% Mortgage-backed Securities
  • 20% Cash and CDs
  • 5% Other Bonds

With this example, you will place your portfolio into 80% fixed income and 20% equities. 

When you inject that much money into fixed income securities, your portfolio will be protected in the event of a stock market crash. But still, this portfolio may not generate the amount of income you will need as a retiree. 

50/50

50% equities, 50% fixed income

  • 25% U.S Equities
  • 25% International Equities
  • 20% U.S Treasuries
  • 10% Global Bonds
  • 10% Corporate Bonds
  • 15% Cash and CDs

Half of the funds in fixed income and half in equities would make a better portfolio. This kind of portfolio is likely to generate an average of 8.4% in annual returns over time. That is $42,000 annual income. However, more equity means a higher risk. 

40/60

40% equities, 60% fixed income

  • 20% U.S Equities
  • 20% International Equities
  • 20% U.S Treasuries
  • 20% Global Bonds
  • 10% Corporate Bonds
  • 10% Cash and CDs

With such a portfolio, principal will be preserved and the portfolio might even grow. 

The average annual return would be about 7.8%.

100% Fixed Income

  • 20% U.S Treasuries
  • 20% Global Bonds
  • 15% Corporate Bonds
  • 10% (TIPS) Treasury Inflation-Protected Securities
  • 10% Mortgage-backed Securities
  • 20% Cash and CDs
  • 5% Other Bonds

While a portfolio like this is protected from market downturn, its growth may not be enough to offset withdrawals. 

Annuity Option

Annuities are not for everyone but could be a good option for retirement. You can even get $33,000 annually with less than $500,000. 

Blue-Chip Stocks Guide: Should You Buy in During a Market Downturn?

Even when the market is volatile, blue-chip stocks don’t stop being a significant part of investment plans. When you hear of blue-chip companies, think of the huge stable companies—pillars of the economy. They make up big portions of many investment portfolios because they are low-risk. 

The coronavirus is greatly affecting the market—and not in a good way. Many investors have no idea what to do with their portfolio. Blue-chip stocks are selling at a much lower price and it may be wise to buy them during a downturn. 

What Are Blue-Chip Stocks? 

It is hard to come up with a perfect definition for blue-chip stocks. So, to help you understand, here are the characteristics of companies in that category.

Large market cap: they are big fish in the stock market. Large-cap stocks are those with a market cap of $10 billion and over. 

History of stable earnings: the blue-chip status is not achieved overnight. These companies have built a reputation for decades. 

Good growth prospects: once they become blue-chip companies, these businesses don’t stop there. They focus on future growth.

Market leadership: the companies are known even to non-investors.

Why Invest in Blue-Chip Stocks?

Even when the market is shaky, blue-chip stocks remain to be a great investment. Their characteristics ensure a high chance of outlasting a market downturn. 

The prolonged effects of a recession and a huge decrease in revenue are enough to kill most companies. But the extensive borrowing and deep pockets of blue-chip companies will keep them open even in the worst of times. 

Here are some blue-chip companies that have lived through market downturns:

  • DuPont
  • JPMorgan Chase
  • Cigna
  • McKesson
  • Pfizer 

Buying Blue-Chip Stocks

You can easily get a blue-chip stock if you own a brokerage account for selling and buying stocks in the U.S.

Follow the steps below:

  • Conduct an extensive research on blue-chip stocks.
  • Pick a blue-chip company that you like.
  • Place an order in your account.

Where to Get Blue-Chip Stocks

If you have access to Nasdaq or NYSE stocks or an investment app, you can purchase blue-chip stock. Many experts recommend the following top brokers. 

  • Webull
  • TD Ameritrade
  • Fidelity Investments
  • SoFi Wealth
  • Public

A List of Blue-Chip Stocks

Finding a comprehensive list is not that simple. But you can start at the Dow Jones Industrial Average (DJIA).

Here are a few blue-chip companies:

  • 3M Company
  • American Express Company
  • Apple Inc.
  • The Boeing Company
  • Cisco Systems, Inc.
  • The Coca-Cola Company
  • The Walt Disney Company
  • Johnson & Johnson
  • Nike, Inc.
  • Visa Inc.
  • Walmart Inc.

Blue-Chip Vs Large-Cap Stocks

All large-cap stocks are not blue-chip stocks. Some large-cap stocks are not strong enough. Generally, many large-cap stocks make a safe investment. But market capitalization should not be your only determinant. Not every company will stay big. 

Blue-Chip Funds

There are mutual funds and ETFs whose sole focus is blue-chip stocks—think S&P 500 funds. 

Blue-chip funds make an awesome investment and a diverse fund will help your portfolio when the market is volatile. 

How to Invest in Commodities: Your Guide to Commodities Trading

Investing in commodities can be just as risky as investing in stocks. But they are still worth taking a look at.

What Are Commodities?

Commodities are an investing asset class like bonds and stocks. When you invest in commodities, you get market exposure to assets in the real world such as corn, gold or oil. 

Commodity Types

The commodities are usually divided into 4 key categories:

Metals: commodities under this category include mined metals like platinum, copper, silver and gold. 

Livestock: think meat products, hogs and cattle.

Energy: in this category you will find natural gas, crude oil, etc.

Agriculture: the commodities here include sugar, cotton, coffee, cocoa, barley, rice, wheat, soybeans, corn and every other crop you can think of. 

You may have heard of the more common investments such as gold but most of the others are not known by regular investors. Investing in commodities doesn’t mean physically owning them. 

Commodity investing is considered to be very risky. 

Speaking of risks…

What Are the Risks of Commodity Investing?

Types of Risks

A quick internet search will show you how easy it is to lose your entire fortune in market investing. If you choose to invest in commodities, these are the risks you should expect to deal with:

Market factors: when drinking coffee becomes a trend, the demand will rise—and so will the price.

Environmental factors: bad weather can adversely affect a large portion of the crop and cause a shortage. The price will then increase.

Fear: when a recession is looming, fear will cause the price of gold to go up and when the economy is good the price goes down.

Governance action: when a government nationalizes the source of a commodity, the price can either go up or down. 

Leverage and margin: even a small investment may have significant results—positive or negative.

If you are okay with these risks, be very cautious and don’t go all in at once. 

Advantages of Commodity Investing

Diversification: your portfolio will be exposed to a different asset class. You will be at a better place to manage the stock market volatility.

High return potential: the fluctuation of commodities occurs often. This could mean very high returns for you. But again, you can’t have great returns without great risk.

Hedging against inflation: even with high returns, inflation can mess you up. Commodity investing will offer some form of protection against inflation losses. 

The Right Broker to Buy From

Many brokerages have an account through which you can start the process of investing in commodities. 

Here are some commodity trading methods:

Futures: these allow you to own assets without having to take control. Stock brokers such as E*Trade offer this.

Options: with options, you can buy or sell a commodity at a specified price at a future date.

ETFs: an ETF will either contain a basket of commodities or just one. It offers an easy way to get into commodity investing.

Mutual funds: if you are looking to invest in commodities for the long-term, mutual funds may be great for you. 

Remember to tread carefully so as not to lose all your life savings.

10 Ways to Profit in a Bear Market

Bear markets can be brutal. Luckily, they are typically shorter compared to bull markets. If you took the diversification advice seriously, you may get through the storm without losing much.

Wise investors can take advantage of the opportunities offered by bear markets to boost their portfolio and create a strong foundation for building wealth over the long-term. If you want to profit from a bear market, try the following ten ways. 

Hunt for Good Stocks

In a bear market, you will notice that all stocks—even those of good companies—drop. But there is one difference: good stocks will always recover and skyrocket. The bad stocks never go up. If a good stock declines, that offers you an opportunity to buy.  

Find Dividends

If the price of the stock declines due to selling but the company is still making profits, going strong and even paying dividends, then that is a good time to buy if you are looking for dividend income. 

Gems with Bond Ratings

In a bear market, the economic conditions are tough. You get to know who is managing their debt properly and who is sinking in debt. It is in a situation like this that you realize the value of bond rating. It gives you an idea of the creditworthiness of a company. An AAA rating is the best and such a company is worth investing in (as far as buying its bonds is concerned).  

Rotate Your Sectors

A combination of stocks and ETFs allows you to diversify and apply the sector rotation strategy. Various sectors perform differently during different times. 

In a strong and growing economy, businesses that sell “wants” perform well. And their stocks become lucrative. But when the economy is weakening, move to defensive stocks. These include utilities, beverages and food among others. 

Go Short on Bad Stocks

Good stocks suffer in a bear market, but not as much as bad stocks. A bad stock will continue falling and you can take this opportunity to benefit from its decline. You can short it and make a profit when it plunges further. 

Use Margin Carefully

Margin is buying securities with funds borrowed from your broker. It can be an awesome tactic. But know that you are working with the element of speculation. 

Buy a Call Option

Purchasing call options is more of speculation rather than investing. The shelf life of a call option is finite and, if you’re not keen, it could expire worthless. But it is usually really cheap. 

A Covered Call Option

If you sell a call option against your stock, you can say that you have written a covered call. It is a safe method of boosting your stock position yield.

Write a Put Option

Writing a put option means that you are obligated to purchase 100 ETFs or stock shares at a given price as long as the option is active. You can use this strategy to make money in a bear market.

Be Patient

Don’t panic or make any quick decisions. Bear markets don’t last forever. 

The ‘Secret’ to a Stock Market Fortune

The most profitable stock market activity is not owning stocks, investing or even trading. If you want to become successful easily, sell the secret to success. 

Everyone in the market has seen the countless advertisements about making big profits easily and quickly. One time they are selling a hot pick and another time it may be a special strategy for trading. They ask you to sign up and you will be given the ‘secret’. Then you can enjoy all the riches in the world. 

But it is common knowledge that a magical secret for trading doesn’t exist. No one, not even the wisest investor, can tell you which stock will triple your riches overnight. 

There is no secret—and that is the secret. You become successful by persevering and working hard. And even then, you will lose money and face challenges. You won’t go far with shortcuts. You need to learn how to bet the market. You may find an expert to help you but you will still have to put in effort. 

The Passive Approach

Some people believe that you cannot beat the market. They tried and gave up. Since the market rises over time, they decided to just ride it instead of attempting to beat it. 

In recent years, many investors have turned to the passive approach. The first ever index-based mutual funds, Vanguard Funds, were launched in the ‘70s. Over the last decade, index funds have grown tremendously. 

But the passive approach has one downside, timing is still a human’s job. You can’t just leave your funds forever. Sometimes, passive funds don’t yield positive returns for a decade.

The Buffet Approach

Some other investors, in their frustration, have chosen to do the passive approach differently. Instead of indices, they opt for individual stocks. Their main goal is to stumble upon a stock that will perform amazingly over the long-term. Take Microsoft (MSFT) or Apple (AAPL), for instance. People who picked them up early on have undoubtedly done well. 

The main issue is that finding a stock like this is extremely difficult, especially by prospecting. Looking back, it seems too easy for someone to have predicted what stock would be big. But when you try to predict the future, you realize that it is actually hard. 

The Soros Approach

George Soros said that he is not better than other investors. But he is quick to admit his mistakes and focus on the next chance. 

If there was ever a secret to success, this would be it. You don’t have to look for a magical strategy or hope that things will work out for you. Instead, admit that you made a mistake and move on. The sooner you admit your mistake, the easier it will be to grab the next great opportunity. 

There are a few tips that can help you become successful. First, pick an approach that suits you. Find a way to get a steady stream of good ideas to combine with your approach. Then find a suitable method to manage positions. 

How to Invest in Stocks

The stock market can be intimidating for beginners. Stocks are different from certificates of deposit, money market funds, and saving accounts. Their principal value can either fall or rise. Lack of emotional control or sufficient knowledge may see you lose a lot of money. Why Start Now? If you start earlier, you will gain more. Money grows with time. Here are steps to guide you as you begin the journey. Before you invest in anything, it is always important to assess your financial situation and ensure that you can handle the new activity. Consider the following: Employment: your income and job should offer you some sense of security as you start investing. Debt: do not start investing if you have a huge amount of debt. Pay off some of it or all. Family situation: ensure a stable family situation first—one without a sudden change that requires money. Household budget: include your investment ventures in your budget.

Know the reason for investing and determine whether it is for a long-term or short-term goal. Create a cash reserve—not subject to risk of any kind. It should be equal to three or more months’ worth of living expenses. This reserve will come in handy in case of an emergency. It will also help you stay calm if your risky investments drop. With an emergency fund in place, start by investing in a retirement account. This could be an IRA or a 401(k). Retirement accounts make great investments because they are long-term and tax-sheltered. Start Your Investment Journey with a Low-Cost Online Service – Robo advisor services are perfect for investors who are not into DIY. They build an ideal portfolio for you based on your risk tolerance and needs. With an online stockbroker, you will be doing the trading. This means selling, buying, and researching. Start with ETFs (Exchange Traded Funds) or Mutual Funds – Funds are usually professionally managed so stock selection will not be on you. Your only job is to determine the amount of money you would like to invest in a certain fund/group of funds. Mutual fund investing is hassle-free, but you can make it even better with index funds. There is no chance of you outperforming the market. However, you also cannot underperform it.

This is perfect for new investors. Dollar-cost averaging typically means buying into investment positions gradually as opposed to all at once. If you have a certain amount of money for investing, do not pour it all in. Inject it into the fund gradually. Investing in ETFs and mutual funds is safe—even for novices. But to go beyond that, you must learn as much as possible. Read books, the Wall Street Journal, and even take a course. Invest Gradually in Individual Stocks – Dollar-cost averaging is not available for stock investing. You will need to come up with something of your own. Make sure you diversify, never put all your eggs in one basket. Spread out your capital. If you do not understand stock market basics, information on stock trading will not make sense to you. Some phrases such as intraday highs and earnings movers may not mean anything to you and, for the most part, they should not. Long-term investors, especially, do not have to understand these words or even the stock market in general.

But if you plan on trading stocks, understanding the stock market is a must—or at the very least, know the basics. The stock market consists of exchanges, think Nasdaq and the New York Stock Exchange. Stocks are usually listed on an exchange and it is like a market for the stock shares. Sellers and buyers come together to trade. This exchange tracks the price, demand, and supply of the stock. But a stock market is not like any other market. You cannot decide to go and pick whatever shares you want from the shelf.

Brokers represent individual traders. The Nasdaq and NYSE open at 9:30 a.m. and close at 4:00 p.m. Depending on the broker, after-hours and premarket trading sessions are available. Sometimes you will hear people say that the stock market is up or down. They are talking about one of the key market indexes. A market index monitors the performance of a certain group of stocks. The group of stocks represents a sector of the market (e.g. technology) or the whole market. You may have heard of the Dow Jones Industrial Average, Nasdaq composite and the S&P 500 which are commonly used. These indexes are used by investors to benchmark their portfolio’s performance, and sometimes, they help them make trading decisions. 

Many investors know to create a diversified portfolio and to hold on to their stocks through thick and thin. Those that involve themselves in stock trading, however, love the action. Trading in stocks means selling and buying frequently to try and time the market. Stock traders seek to benefit from short-term events by buying at a low or selling for profit. Day traders are those that trade several times a day while active traders trade several times a month. These types of traders research extensively and follow the market obsessively. Bull Vs. Bear Markets – neither of these animals are friendly but the bear is the real symbol of fear in the stock market. Bear market: stock prices falling 20%+ across multiple indexes. Bear markets come after bull markets and vice versa. They both indicate the beginning of a bigger economic pattern. In short, a bull market is good news while a bear market is not. Historically, bull markets last way longer than the average bear market. Market Crash Vs Correction – stock market correction: when the market falls by 10%+. Stock market crash: a sudden sharp drop in prices. Do not let a crash worry you. Stock markets will always rise in value. Focus less on the short-term and more on the long-term. Bear markers are unavoidable.

But with diversification, your portfolio is protected from market setbacks. If you begin investing as a teenager, you will have a great financial advantage when you are an adult, even with small returns. Do not let today’s uncertainty and bad news about the stock market stop you. Downturns are normal in the market. What Barriers Should You Expect as an Investing Teen? Before you get too excited and start calling stockbrokers, here is something you should know: teens cannot open their own brokerage accounts. You will come across so many investing apps, such as Robinhood, that make the process easier for teenagers. However, even those require you to be 18 years old. There is nothing anyone can do about this because the restriction is required by law. But it does not mean that you are completely locked out.

You can use a custodial account—have an adult in your life open and maintain it for you. With that type of account, you will be investing through your guardian until you are 21 (or 18 in some states). How Do Custodial Accounts Work? A parent opens the custodial account and gifts money into it. The maximum amount they can give is $15000 (as of 2020). You can then use the money in the account to invest. The parent is the one who will be making the actual trade, though. You cannot contact your account broker and management control only belongs to your parents. Do not be discouraged— you can still be part of the process by choosing investments and asset classes. After a thorough assessment, these are some of the best services offering custodial accounts. 

E*TRADE, Ally Invest, and Charles Schwab. Most people choose to invest for the long-term, which is a fantastic idea. You can decide to do that as well and set up a retirement account. Opening one as a teenager means that your money has time to grow. And with compound interest, your funds will keep on accumulating. All you need is an income to contribute to your account. A traditional IRA allows you to contribute a maximum of $5,500 a year as a teenager (as of 2018). These work pretty much like traditional IRAs. The maximum contribution per year is $5,500. The main difference between the two is that Roth contributions are not tax-deductible. You can also withdraw money at any time (after 5 years) and you will not be penalized. Unfortunately, your account is not tax exempt. Your first $1050 income will be tax-free, the next $1050 will be taxed at 10% and anything above $2100 will be taxed at the marginal rate of your parents. What to put in your account? The best thing to do is begin with stocks then dive into low-cost mutual funds. Your parents may say no to a custodial stock account. In that case, see if they will agree to a high-yield savings account.

Online ones are the best and here are some good examples: Capital One, Ally Bank, CIT Bank, Discover, and Navy Federal Credit Union. Hopefully, you already have a checking account. Connect it with a micro savings app. You will be saving and investing anytime you make a purchase. Investing in small-cap stocks can be a smart move for the long-term investor. To optimize their returns, the investor must know when to buy them. Some people are wise and avoid market timing. However, there are tactical and strategic moves they can make to change the fund allocation in small-cap stocks when the opportunity presents itself. There are investors that select an appropriate mutual fund allocation for small-cap stocks and stick to it for the entire period. Occasionally, they rebalance the portfolio; quarterly or annually. Nonetheless, active investors can, in smart ways, alter the exposure of small-cap stock funds for the purpose of improving performance in the long-term. In rising rate environments, small-cap stocks in the U.S have outperformed the large-cap stocks—according to history. These rising rates are observed when the Federal Reserve is no longer reducing interest rates to facilitate the economy or when an economy is starting to recover.

Another time when you should consider buying small-cap stocks is when the market appears to have been down for quite some time. That is, when the market is at a low point and not much optimism left for quite some time. It will not be easy to guess this one correctly but when there is extreme pessimism you can easily feel it and see it on the international and local media. In a growing economy, smaller companies have the potential to rebound faster than the larger ones. Their general fate is not directly tied to economic factors such as interest rates to facilitate their growth. Small companies are like small boats in the water, they can navigate better and move faster than the huge ocean liners. With smaller companies, decisions on new services and products are also implemented faster because their potential obstructions, layers of management, and committees are fewer. Large companies do not have this advantage. When the economy is emerging from recession and experiencing growth, small-cap stocks can respond quicker to this new positive environment and even grow at a faster rate than the large-cap stocks.

Small companies usually raise their capital by selling shares. Large companies, on the other hand, do so by issuing bonds. Because small companies are not really that dependent on bonds when funding projects and expanding operations, high interest rates do not negatively affect their ability to grow. In the years following the 2003 and 2009 recessions, results were mixed. In 2003, small-cap stocks led mid-cap stocks and large-cap stocks. In 2009, the results were different as mid-cap stocks led and small-cap stocks barely won over large-cap stocks. Your takeaway here should be that averages or rules of thumb do not apply all the time. Even after reading about the benefits of small-cap stocks, consider where the information has been sourced from research further on this subject. Investment apps help you manage your investments in the financial market. Most of them offer amazing services at affordable fees, which saves investors a lot of money in the long run. Now you do not have to call your stockbroker to trade. You can do it with a few taps on the screen. All things considered, here are the best investments apps in 2020. Many investors in the U.S are familiar with TD Ameritrade—a large brokerage firm. Its app is the best compared to all others because it has a wide range of options and is great for beginners and pros alike. The default app is ideal for intermediate and beginner traders. The professional level one is more suited for experts. 

The benefits you will enjoy including commission-free ETF and stock trades and zero-base fee option trades. Key Features – Name of apps: TD Ameritrade Mobile and thinkorswim. No minimum deposit. Investments types: bonds, mutual funds, ETFs, options, stocks and much more. Account types: different account types including education, retirement and standard. Pros – For experts and beginners. Advanced trading platforms have no extra fees. Cons – Schwab is acquiring TD Ameritrade. Fidelity: Runner-Up – This one offers extensive resources for investors with long-term goals. The mobile app can be used with Google Assistant and Apple Watch. Key Features – Name of app: Fidelity Investments. No minimum deposit. Investment types: fractional share investing, mutual funds, ETFs, stocks, etc. Account types: education accounts, retirement, brokerage, etc. Pros – Fractional share investing. Lots of mobile app features. Most account types are supported. Cons – Phone trades are charged a $12.95 fee. Ally: Suitable for Beginners. The platform is easy to use, and they do not have a minimum required balance. Key Features – Name of app: Ally.

No minimum deposit. Investment types: mutual funds, bonds, options, ETFs, stocks, etc. Account types: self-directed and managed portfolios. No physical location. Pros – Investing and banking in one app. Forex trading app. Cons – Limited features on mobile app. Webull: Best Free. This one is relatively new, but its mobile app is nothing short of impressive. Key Features – Name of app: Webull: Stocks, Options & ETFs. No minimum deposit. Investment types: cryptocurrencies, options, ETFs, and stocks. Account types: IRA and brokerage accounts. Pros – Community area. Paper trading. Advanced charting features. Cons – Additional subscription for real-time data streams. Limited investment types. Acorns: Ideal for Automated Investment. Acorns is fun to use but its fees are a bit high. Key Features – Name of app: Acorns: Invest Spare Change. No minimum deposit. Investment types: bond ETF and stock fractional share investing. Account types: checking accounts, retirement, robo-advisor brokerage. Pros – Simple, automated micro-investing. Gamified app experience

Cons – Monthly fee for all accounts. SoFi: Ideal for Learning. If you want to start small and have access to investment education, try SoFi. Key Features – Name of app: SoFi Invest Money & Buy Crypto. $1 minimum deposit. Investment types: cryptocurrencies, ETFs, and stocks. Account types: cryptocurrency, retirement, and self-directed and managed portfolios. Pros – Fractional share investing. Member events. Cons – Lack of advanced research tools. Limited investment assets.